Geron Corporation — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Geron is a clinical-stage oncology company whose sole product candidate, imetelstat, is exclusively licensed to Janssen for development and commercialization. Geron has no product sales; Janssen conducts and funds imetelstat development, with Geron sharing 50% of costs for the IMbark and IMerge trials.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $208,000 | $174,000 | $526,000 | $711,000 |
| Research and development | $3.204 million | $2.499 million | $5.644 million | $5.873 million |
| General and administrative | $4.246 million | $4.406 million | $9.561 million | $9.063 million |
| Operating loss | $7.242 million | $6.731 million | $14.679 million | $14.225 million |
| Net loss | $6.934 million | $6.405 million | $14.120 million | $13.588 million |
| Net loss per share | $0.04 | $0.04 | $0.08 | $0.09 |
Q2 revenue comprised $92,000 in license fees and $116,000 in royalties. For the six months, license fees were $340,000 and royalties were $186,000. Revenue was immaterial relative to operating expenses; the filing does not present a meaningful operating margin.
At June 30, cash, cash equivalents, restricted cash and current and noncurrent marketable securities totaled approximately $181.4 million, versus $109.2 million at December 31, 2017. Current assets were $162.3 million and current liabilities $4.9 million. Stockholders’ equity was $178.4 million; the balance sheet reports no debt. Accumulated deficit was $998.6 million.
For the six months, operating cash use was $11.9 million, investing cash use was $69.2 million (primarily net purchases of securities), and financing provided $83.9 million, mainly from common-stock sales. Geron said existing resources and expected interest income should fund its current operating level for at least 12 months, but anticipated negative cash flow thereafter.
Material changes versus prior comparable period
- Q2 revenue increased $34,000 year over year, while first-half revenue declined $185,000. Geron attributed the first-half decline to fewer active hTERT research licenses, lower licensee product sales, and the change in royalty recognition under the new revenue standard.
- Q2 R&D expense rose $705,000, mainly from higher Janssen clinical-development cost sharing and consulting. First-half R&D fell $229,000, primarily because of lower clinical-development costs and lower stock-based compensation.
- First-half G&A increased $498,000, reflecting higher legal and consulting costs, partly offset by lower stock-based compensation.
- First-half net loss increased $532,000, despite higher interest income; results included a $475,000 six-month fair-value loss on Geron’s Sienna Cancer Diagnostics investment. Interest income increased with higher portfolio yields and a larger investment portfolio.
- Geron raised $83.9 million net through at-the-market stock offerings during the first half, substantially increasing liquidity but diluting shareholders. The company completed its 2015 sales agreement and began a new agreement authorizing up to $100 million in stock sales.
Outlook, management commentary and principal risks
- Key near-term catalyst: Janssen began IMbark’s protocol-specified primary analysis, including overall survival, using an April 26, 2018 clinical cutoff. Geron expected Janssen’s decision by the end of Q3 2018 on whether to continue imetelstat development. Janssen could discontinue the program or terminate the collaboration at any time.
- IMbark enrollment had closed after more than 100 patients were enrolled. In a prior review using a January 2018 cutoff, median overall survival had not been reached in either dose arm. Enrollment in the 4.7 mg/kg arm had been closed and enrollment in the 9.4 mg/kg arm suspended after interim efficacy criteria were not met.
- In IMerge, preliminary results for a 13-patient refined subgroup showed about half achieved at least eight weeks of red-blood-cell transfusion independence and nearly one-third achieved at least 24 weeks. Janssen enrolled 25 additional patients in the expanded Part 1, completing enrollment in February 2018, but had not committed to starting Part 2.
- If Janssen continues, Geron may opt in to share U.S. development and promotion costs, including reimbursement of certain prior costs, in exchange for a $65 million continuation payment, higher potential milestones and royalties, and an option to co-promote. If Geron declines the opt-in, it would receive the $65 million continuation payment plus a $70 million fee for Janssen’s retention of full U.S. rights, with lower potential milestone and royalty terms. These payments are contingent; the filing recognized none of the potential milestones as probable.
- Geron stated that, absent adequate survival improvement in IMbark and a positive benefit-risk profile in the expanded IMerge population, it believed Janssen would discontinue the program. Termination could leave Geron responsible for substantial development costs if it chose to continue independently and could require additional financing or lead to discontinuation of imetelstat.
- Management planned business-development efforts to acquire or in-license other oncology assets, subject to available capital and the collaboration’s outcome. Such transactions could materially affect liquidity and require debt or additional equity financing. G&A was expected to remain consistent during the rest of 2018.
- Key risks include clinical efficacy and safety uncertainty, including serious cytopenias and other adverse events; regulatory, manufacturing and trial delays; dependence on Janssen and third-party manufacturers; competition; patent and litigation risks; and potential financing needs and shareholder dilution. Geron noted that hTERT-related license revenue was expected to decline and be eliminated by the end of 2019 as patents expire.
- Geron adopted ASC 606 and new equity-investment accounting in 2018. The adoption produced opening-balance adjustments, including a $204,000 royalty receivable and a $1.189 million fair-value adjustment for its Sienna investment. Prior-period revenue was not recast, limiting comparability. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Janssen’s IMbark continuation decision and the full overall-survival analysis, including timing and any resulting collaboration or development changes.
- Final and expanded-cohort IMerge efficacy and safety results, and whether Janssen proceeds with the planned Phase 3 Part 2.
- Any opt-in election, associated cost-reimbursement obligations, and the actual payment and royalty terms that would apply.
- Cash use, remaining runway, future financing plans and dilution; as of July 31, approximately $60.5 million remained available under the 2018 at-the-market sales agreement.
- Progress on any asset acquisition or licensing plans, and the expected decline in hTERT license and royalty revenues as related patents expire.